Elliott Management, one of the most zealous shareholder activists on Wall Street, is going back to investors for more money just two years after the hedge fund raised $5bn in one day as it prepares for a market downturn.
The $38.3bn activist fund led by Paul Singer has been building up a sizeable war chest to spend on new opportunities, including a $2bn co-investment fund that closed in August to take companies private.
Elliott could raise a further $5bn in the new funding round, according to an investor familiar with the terms. The hedge fund is using a drawdown structure that will feed into the main fund, an arrangement that is often used by private equity firms but has become more popular among activists.
In a drawdown structure, investors who agree to commit cash to the fund do not have to front up capital immediately. Instead their investment is called over time as opportunities are identified and no fees are charged until the money is put to work.
Elliott used the same structure when it raised money two years ago to position itself for market disruption. In a 2017 letter to investors, Mr Singer said the firm wanted to raise funds before investor liquidity dried up.
An investor who allocated more than $100m to Elliott in the 2017 fundraising called drawdown structures “problematic” and “restrictive”. Allocators had to make sure they could meet their commitments when they were called or face paying a hefty fee, he said. However, many investors were willing to give up liquidity to get early access to well-known managers, he conceded.
The new capital raising is further indication that Mr Singer is anticipating a market meltdown. The billionaire investor, who has been vocal about complacency in global financial markets, recently predicted that the economy was headed for a significant downturn with risk at an all-time high.
“The global financial system is very much toward the risky end of the spectrum in terms of debt,” Mr Singer said during a panel at the Aspen Ideas Festival in July. “Global debt is at an all-time high, derivatives are at an all-time high and it took all of this monetary ease to get to where we are today”.
Mr Singer has proven he can play the long game after battling Argentina for more than a decade over its defaulted debt. Elliott struck a deal with reformist president Mauricio Macri in 2016 and collected some $2.4bn from the country, putting an end to a 15-year long legal fight.
Elliott has already put some of the capital it raised in 2017 to work. The hedge fund deployed $3.4bn in the first six months of 2019, according to a report by Lazard, outspending Carl Icahn to take top spot as the most active activist.
Earlier this month, the hedge fund took on one of America’s largest companies, US telecoms group AT&T. Elliott disclosed a $3.2bn stake in the company as part of a campaign for an overhaul of the business.
Elliott is up 4.5 per cent through to the end of August, according to a person familiar with the fund’s returns.
The fund declined to comment on the fundraising.